A Comprehensive Analysis of Key Changes, Applicability, and Strategic Considerations
Issued by: Central Board of Direct Taxes (CBDT)
Notification: Income-tax (Twelfth Amendment) Rules, 2025
Effective from: 1st April 2025
Legal Authority: Rule 12 of the Income-tax Rules, 1962
Overview
The Central Board of Direct Taxes (CBDT) has notified revised Income Tax Return (ITR) Forms ITR-1 (Sahaj) and ITR-4 (Sugam) for Assessment Year (AY) 2025–26, via the Income-tax (Twelfth Amendment) Rules, 2025. These forms are applicable for income earned during Financial Year (FY) 2024–25, and introduce important structural, compliance, and disclosure updates relevant for resident individuals and small taxpayers.
The Appropriate Form
ITR-1 (Sahaj) – For Resident Individuals (Excl. Not Ordinarily Resident)
Eligible if all of the following apply:
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Total income ≤ ₹50 lakh
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Income sources:
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Salary/Pension
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One house property
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Other sources (e.g., interest)
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LTCG u/s 112A up to ₹1.25 lakh
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Agricultural income ≤ ₹5,000
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Not eligible if:
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Director in a company
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Holds unlisted shares
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Has foreign assets/income
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Claiming tax relief for ESOPs
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Covered under Section 194N
ITR-4 (Sugam) – For Presumptive Income Taxpayers
Applicable to:
Resident Individuals / HUFs / Firms (excluding LLPs) who:
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Opt for presumptive taxation under Sections 44AD, 44ADA, 44AE
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Have total income ≤ ₹50 lakh
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Earn LTCG u/s 112A not exceeding ₹1.25 lakh
Not eligible if:
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Director in a company
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Owns foreign assets or earns foreign income
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Agricultural income > ₹5,000
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Not ordinarily resident or a non-resident
Changes Introduced (AY 2025–26)
1. Capital Gains under Section 112A (up to ₹1.25 lakh)
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Taxpayers earning LTCG from listed securities up to ₹1.25 lakh can now file ITR-1 or ITR-4.
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Mandatory reporting includes ISIN, acquisition cost, and sale consideration.
2. Expanded Scope of Mandatory Return Filing [Section 139(1)(vii)]
Return filing becomes mandatory, even below basic exemption limit, if:
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Deposits in current accounts > ₹1 crore
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Foreign travel expenses > ₹2 lakh
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Electricity bill payments > ₹1 lakh
3. Opt-Out of New Tax Regime (Section 115BAC)
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Taxpayers opting out of the default regime must file Form 10-IEA before the due date as per Section 115BAC(6).
4. Detailed Income & Deduction Disclosures
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Clearer fields for:
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Salary breakup (basic, allowances, etc.)
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House property interest
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Source-wise interest income
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Section-wise deductions under Chapter VI-A (80C, 80D, 80G, etc.)
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5. Comprehensive Bank Account Reporting
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All non-dormant bank accounts held during the year must be disclosed (including account number, IFSC, etc.).
6. TDS/TCS Reconciliation Requirement
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Mandatory matching of credit with Form 26AS, AIS, Form 16/16A.
7. Schedule AL (Assets & Liabilities)
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Required in ITR-4 if income exceeds ₹50 lakh.
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Must disclose immovable assets, jewellery, vehicles, shares, loans, and liabilities.
Comparative Table of ITR Forms – AY 2025–26
| Feature | ITR-1 (Sahaj) | ITR-4 (Sugam) | ITR-2 | ITR-3 |
|---|---|---|---|---|
| Applicable To | Resident Individuals (excluding NOR) | Resident Individuals, HUFs, Firms (Non-LLP) under presumptive scheme | Individuals/HUFs not eligible for ITR-1 | Individuals/HUFs with income from business/profession |
| Income Limit | Up to ₹50 lakh | Up to ₹50 lakh | No limit | No limit |
| Allowed Sources of Income | Salary, one house property, other sources, LTCG u/s 112A, Agri ≤ ₹5K | Presumptive business income (44AD/ADA/AE), LTCG u/s 112A, Agri ≤ ₹5K | Salary, house property, capital gains, other income, foreign | Business/professional, capital gains, foreign, other incomes |
| LTCG under Section 112A (≤ ₹1.25L) | ✅ Allowed | ✅ Allowed | ✅ Allowed | ✅ Allowed |
| Foreign Assets/Income | ❌ Not Allowed | ❌ Not Allowed | ✅ Allowed | ✅ Allowed |
| Company Directorship | ❌ Not Allowed | ❌ Not Allowed | ✅ Allowed | ✅ Allowed |
| Unlisted Equity Holding | ❌ Not Allowed | ❌ Not Allowed | ✅ Allowed | ✅ Allowed |
| Audit Requirement | ❌ Not Applicable | ✅ If turnover > limits or opting out of presumptive scheme | ✅ If conditions met | ✅ If turnover exceeds audit threshold |
| Schedule AL (Assets & Liabilities) | ❌ Not Required | ✅ Required if income > ₹50 lakh | ✅ Required if income > ₹50 lakh | ✅ Required if income > ₹50 lakh |
| Form Complexity | Simple | Simple to Moderate | Moderate | Complex |
Strategic Cautions
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Loss Reporting: ITR-1/4 restrict set-off of house property loss to ₹2,00,000. Use ITR-2/3 if claiming higher set-off.
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Incorrect Form = Defective Return: Can lead to notices under Sections 139(9), 142(1), 148, or 153A.
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Business Audit: If business turnover exceeds ₹1 crore (or ₹10 crore if cash receipts <5%), audit under Section 44AB becomes mandatory.
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Mismatch in TDS/TCS and AIS can trigger scrutiny – always reconcile before filing.
Conclusion
The updated ITR-1 and ITR-4 forms are designed for simplicity but come with enhanced disclosure obligations. Taxpayers must exercise caution while selecting the appropriate form, especially in light of new inclusions like capital gains, mandatory filing thresholds, and opt-in/opt-out from new tax regimes.
